Insuring Sunflower in 2014
Monday, January 6, 2014
filed under: Marketing/Risk Management
With volatile markets and Mother Nature having gone berserk in recent years would you ever think of going without crop insurance to help cover your risk? I don’t think so. Crop insurance is purchased by most agricultural producers to protect themselves against either the loss of their crops due to natural disasters or the loss of revenue due to declines in the prices of agricultural commodities. Having crop insurance allows you to sleep better at night knowing you have some protection from the factors outside of your control.
Since 2011, your crop insurance choices for sunflower have been simpler. You have three choices: Yield Protection, Revenue Protection or Revenue Protection without Harvest Price. The “Basic Provisions” are the same for all crops and all policies, making paper work much simpler to digest. Revenue and yield policies have the same (minimum) starting price and are based on December soy oil prices traded on the Chicago Board of Trade during February and October. Revenue Protection offers additional protection for price fluctuations during the crop year.
Since USDA’s Risk Management Agency (RMA) combined or converted all of the older insurance products into the current options, the main choice of coverage has been the revenue-based policies. More than 75% of all crop insurance policies sold for sunflower have been revenue based.
What’s New for 2014?
Well, there are a few things of which you should be aware.
First, 2014 looks to be quite different in terms of crop insurance price guarantees compared to last year. Futures prices on most, if not all, commodity contracts are considerably below 2013 projected prices. This suggests that crop insurance guarantees will be considerably lower per acre and the downside revenue risk will be greater in 2014 as compared to 2013.
In reality, the situation projected for 2014 is much closer to normal than was the situation in recent years. The safety net provided by crop insurance in 2014 will be similar to that provided by crop insurance in the years between 2000 and 2005. As a result, most farmers will have to face considerable losses before crop insurance makes payments in ’14.
Good news for sunflower growers. Many producers felt that the 10-year average Actual Production History (APH) yields used to determine their crop insurance guarantees did not accurately reflect their current yield potential, due to improved crop genetics and cultural practices that have been introduced in recent years. Moreover, farms with the maximum 10 years of yield history were penalized compared to farms with fewer years.
With this in mind, the National Sunflower Association urged RMA to include Trend-Adjusted APH for sunflower to address this concern. Kevin Capistran, Crookston, Minn., sunflower producer and current NSA president, was very complimentary of RMA officials. “They really worked with us. It was clear that this option was needed for sunflower to mirror what was going on in the field. They (RMA officials) listened to us and approved sunflower for Trend-Adjusted APH in most counties in the Dakotas and Minnesota for the 2014 crop year,” Capistran relates. “The NSA will continue to work with RMA to get all counties in all states that have sunflower crop insurance coverage to offer Trend-Adjusted APH in future years.”
(Those North Dakota, South Dakota and Minnesota counties eligible for Trend-Adjusted APH are listed at the end of this article.)
So how does Trend-Adjusted APH work?
Basically, a trend adjustment factor is estimated for each crop and county. This factor is equal to the estimated annual increase in yield and is based on county average yields determined by the USDA National Agricultural Statistics Service (NASS) each year. Each yield reported in the individual insurance unit’s APH history is adjusted upward by the trend adjustment factor, times the number of years that have passed since the yield was recorded.
Trend-Adjusted APH will give you some options when buying crop insurance in 2014. If the same percent guarantee is chosen, the dollar value of coverage will be increased and the premium you pay will be slightly higher. As an alternative, you can elect a lower percent guarantee for approximately the same dollars of coverage. The total premium would be the same as before, but your share of the premium would be smaller because the percent subsidy from the USDA is higher for lower percent guarantee levels.
The Trend-Adjusted APH is available for either yield protection or revenue protection policies, at all levels of guarantee except catastrophic (CAT) coverage (50% yield guarantee). The Trend-Adjusted APH election must be made by the insured producer by the sales closing date each year — which is March 15 for sunflower in the eligible counties.
New Prevent Plant Acres Rules
Also new in 2014 is RMA’s new Special Provision statement to clarify acreage eligible for prevented planting in the Prairie Pothole National Priority Area. The statement refers to prevented planting and acreage that is physically available for planting in regions of Iowa, Minnesota, Montana, North Dakota and South Dakota for the 2014 crop and succeeding crop years. “I was glad to see that the ‘normal’ weather condition provision was eliminated due to its very subjective nature,” says Jeff Oberholtzer, Mohall, N.D., sunflower producer and NSA board member. “Given the excessively wet conditions one year and drought the next we have faced the past few years, what is ‘normal’ weather anymore? This statement is clear-cut and a move in the right direction,” he adds.
The new provision will require that in order for acreage to be eligible for prevented planting payments, the acreage must have been planted and harvested (or incurred an insurable loss other than for excess moisture) in at least one out of the last four years, regardless of whether any of those years was abnormally dry. The new Special Provision creates a more-objective means for determining acreage eligible for prevented planting than the current rule. However, once the producer is unable to plant and harvest on certain acreage in at least one of the four most recent crop years, the producer will need to demonstrate the land is farmable by planting and harvesting (or incurring an insurable loss other than for excess moisture) two years in a row.
The prevent plant issue normally relates to final planting dates in order to obtain full insurance coverage. The NSA website — www.sunflowernsa.com — offers maps of final planting dates for the Dakotas, Minnesota, Texas, Oklahoma, Kansas, Nebraska, Montana, Wyoming and Colorado. Go to the “growers” link, then “Crop Insurance Planting Maps.” The final planting date as listed on these maps is the last day that you can plant the crop and still get full coverage. After that date, the coverage is reduced by 1% per day. The actual final date that RMA allows the crop to be planted with reduced coverage is anywhere from 20 to 25 days after the date listed on the NSA maps, depending on the county.
When formulating your crop insurance plan for 2014 you’ll have to crunch the numbers to see what the best risk management plan is for your operation, given current prices. The best advice is to sit down with your local crop insurance agent. Your agent can help you manage your business risks through effective, market-based risk management solutions offered by RMA.
Approved Trend-Adjusted APH Counties, 2014